002000/2001 Annual Report & Accounts 01 2000/2001 Year at a Glance • Rod Eddington joins the company as Chief Executive • £145m improvement in pre-tax profits • Excellent customer reaction to new Club World, Club Europe and World Traveller Plus products • Concorde grounded • Talks regarding a potential merger with KLM called off • Restructuring and repositioning of Gatwick • Reorganisation of shorthaul operations underway • Decision to sell go and agreement to purchase British Regional Air Lines • More than 3 million people enjoy the view from the British Airways London00 Eye in its first year of operation 01 Key Results 00 2000-01 1999-00 17.9 01 Group results 99 17.9 00 Turnover m up 3.8% 9,278 8,940 98 17.9 Operating profit m n/m 380 84 99 Dividends (pence) Profit before taxation m n/m 150 5 00 Attributable profit for the year m n/m 114 (21) 265.0 463.0 01 Equity shareholders’ funds m up 2.2% 3,215 3,147 99 261.5 553.5 00 Basic earnings per share p n/m 10.6 (2.0) 98 308.25 703 99 Key financial statistics Share price highs and lows (pence per ordinary share) Mainline yield p/RPK up 7.7% 6.29 5.84 00 150 Operating margin % up 3.2 points 4.1 0.9 01 Net debt/total capital ratio % up 0.6 points 64.5 63.9 99 5 00 98 225 99 Operating statistics Profit before taxation (£ million) Passengers carried group ’000 down 4.5% 44,462 46,578 00 Passengers carried mainline ’000 down 0.3% 36,221 36,346 1,509 01 Revenue tonne kilometres group ’000 down 1.3% 16,987 17,215 99 1,130 00 Available tonne kilometres group ’000 down 2.5% 25,196 25,840 98 1,427 Passenger load factor mainline 99 scheduled services % up 1.9 points 71.7 69.8 Earnings before interest, tax, depreciation, amortisation and rentals (EBITDAR) (£ million) Key results 1 Statement of directors’ responsibilities 23 Notes to the accounts 29 Statement from the Chairman 2 Report of the auditors to the members Principal investments 53 Statement from the Chief Executive 5 of British Airways Plc 23 United States generally accepted accounting Operating and financial review 7 Group profit and loss account 24 information 54 Board members, and leadership team 14 Balance sheets 25 Five year summaries 58 Directors’ report 15 Group cash flow statement 26 Operating and financial statistics 60 Corporate governance 17 Statement of total recognised gains and losses 27 Aircraft fleet 62 Remuneration report 19 Reconciliation of movements in shareholders’ Shareholder information 63 Directors’ remuneration and share funds 27 Glossary 64 interests 20 Summary statements in euros 28 Statement from the Chairman Group pre-tax profit for the year was £150 million, an improvement of £145 million over the 1999/00 result. The profit attributable to shareholders amounted to £114 million. The Board has recommended a final dividend of 12.8 pence per share which, when added to the interim dividend, produces a total of 17.9 pence, the same as last year. Year in review The result represents a significant and very welcome turnaround in your company’s fortunes. Clearly, this did not occur by chance but came as a consequence of our well-defined business strategy and the commitment of our people to deliver it. Our objective remains to cut back on activity which has little or no chance of contributing to profit, in order to concentrate on business which does. It is being achieved through careful adjustment to fleet, network and group structure, together with continuous investment in customer service innovation. This was Rod Eddington’s first year as Chief Executive, resulting in a robust approach to problem areas and a marked improvement in morale throughout your company. The morale factor is crucial in a Lord Marshall of Knightsbridge, Chairman service business and its importance became evident as we faced a range of adversities which disrupted operations at various times during the year: severe bad weather in the United Kingdom; the grounding of Concorde; and a serious computer systems failure. Furthermore, we had to contend with economic slowdown in some important markets, most notably the USA; the effects on travel and tourism to Britain of foot and mouth disease; and the alarming rise in the price of oil which increased our fuel costs, net of hedging, by £264 million. Operational statistics reflect the way the company is being restructured in the market place. On ‘mainline’ services the total number of passengers carried reduced slightly, with capacity decreasing by more than 3 per cent. Cargo revenue rose, year on year, as did volume and yield. The overall load factor was 67 per cent, a small increase. Seat factor showed a slight improvement. Total revenue increased by 3.8 per cent to £9.3 billion. There were two highly significant trends, however. The first was the increase of 4.2 per cent in premium traffic and of 7.7 per cent in average passenger yield. This was achieved in the face of intense competitive pressure in every network sector and indicates the comparative strength of the British Airways brand. The second important trend is the continuing way that costs are being held down. Excluding fuel, costs continue to reduce and productivity to improve. 2 British Airways 00/01 Annual Report Customer service Aer Lingus, American Airlines, British Airways, Cathay Pacific, Last year saw the new range of products and services presented Finnair, Iberia, LanChile and Qantas. under the label of ‘Air Travel For The 21st Century’ becoming High-level discussions continue with American Airlines on ways to available on many more routes across the network. It includes the build the relationship between the two carriers, on both a bi-lateral refurbished First Class, the Club World ‘flat bed,’ the improved Club basis and within oneworld. Code-share agreements have been Europe and World Traveller services and the completely new class, extended with Aer Lingus, Iberia and Qantas. World Traveller Plus. These air travel innovations, especially the new Club World, have received an enthusiastic response from both Zambian Air Services became our 12th franchise partner when it customers and industry observers. commenced operations at the beginning of 2001 and carries the British Airways brand on services within East and Central Africa. On the ground, the programme to introduce the ‘Terraces Lounge’ concept at key airports continues apace. Shortly after the end of the financial year, I opened the ‘Terraces’ facility in our substantially Our people modernised terminal at JFK International Airport, New York. I have mentioned some of the difficulties of the year elsewhere in British Airways’ Terraces Lounges create a unique airport this report, but I do wish to emphasise how much the efforts of our environment for premium customers and are proving to be a people are appreciated not just at times of stress, but also in the distinct competitive advantage. normal, day-to-day operation of your company. The recovery in our Increasingly, advanced information and communications technology financial performance is testimony to their professional commitment is being applied to bring enhancement and innovation to customer and appetite for success. The process of change and restructure still service at all levels. Recently, for example, we joined forces with has some way to go (and, indeed, never really finishes), but our BT to provide a flight information and passenger check in service employees can pride themselves on a morale-boosting performance via mobile Internet. The airline also announced that discounts would in the year under review. be provided for customers making bookings on the British Airways As ever, I extend thanks to members of the executive management website. We intend to be at the forefront of the technological team for their dedicated leadership of the company. I also wish to revolution in airline service. record my usual appreciation of the support, guidance and sound judgement provided by my fellow Board members, for whom the Disposals and investments interests of shareholders remains paramount. A number of disposal and investment decisions were made during the year. They resulted in the sale of the French subsidiary, Board changes Air Liberté; of our interest in Hogg Robinson; and of the low-fare In December, we announced the appointment of Mike Street, the carrier, go which is expected to be completed shortly. Principally airline’s Director of Customer Service and Operations, to the Board. because of the Air Liberté sale, losses on disposals amounted to £69 Shareholders will be asked to elect him formally at the forthcoming million, compared with profits of £249 million in the previous year. annual meeting. Mike Street has made an immense contribution over Following the acquisition of CityFlyer Express, the airline is being his 37-year career with the company. I was personally delighted that fully integrated into mainline operations at Gatwick. We also invested he agreed to serve British Airways at the highest level. in Online Travel Portal and decided that, from May, 2001, our Derek Stevens, Chief Financial Officer since February 1989, UK outbound holiday businesses would be merged with those of retires from the company and the Board at the end of August, 2001. Thomas Cook. Derek has served us extremely well, with considerable skill and Shortly after the end of the year under review, the Secretary of State commitment through some of our most difficult and also our most for Trade and Industry allowed our offer to acquire British Regional successful periods. He leaves with our thanks and good wishes for Air Lines Group (BRAL) to go ahead without reference.